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Sunday, July 19, 2009

What are all the ways that you can invest in gold? Can I buy gold in my IRA?

On the Communism Channel, when they usually joke about buying gold, they usually refer to the stock of gold mining corporations. Gold mining stocks should underperform physical gold for the same reason as the overall stock market, via the Principal-Agent problem. You can't prevent the CEO from paying himself a huge salary and bonus, granting himself and his friends options. Further, many gold mining stocks short sell future production. They actually would lose money and be subjected to margin calls, if the price of gold sharply rises.

Allegedly, some of the banksters have huge naked short positions in gold. They want gold to be discredited as an investment so that paper investments are attractive. They are bailed out by central banks, who sell off a huge amount of gold every time the price rises substantially.

If you buy a gold future and take delivery, then allegedly there is a specifically-numbered bar in the COMEX warehouse that belongs to you. You don't know if the COMEX isn't secretly practicing fractional reserve banking, by issuing more receipts than physical gold is in their vault. In a SHTF scenario you probably won't able to get your gold, if it's in the COMEX warehouse. This is important, because the financial system may collapse in the next 15-20 years. You also have the right to take actual physical delivery of your gold if you buy a gold future. The COMEX charges an annual storage fee and a fee to people who take delivery.

With GLD and SLV, you don't have the right to redeem your shares for gold. However, professional market makers have the right to create/destroy shares of GLD by giving/receiving gold and gold futures. This guarantees that the price of GLD and SLV should track physical metal minus the fund management fee. Again, you will lose your investment in GLD and SLV when the financial system collapses.

If you have at least $100k to invest, then you're probably better off buying a gold future and taking delivery than buying GLD. $100k is approximately 100 ounces of gold, which is the delivery unit for a gold future. The delivery unit for a silver future is 1000 ounces of silver, approximately $15k.

In a 401(k), you probably are SOL if you want to invest in gold or silver. Your best bet is to wait until you switch jobs and then roll it over into an IRA.

If you have an IRA, the simplest way is to get a brokerage option and buy GLD or SLV. Alternatively, there are some custodians that hold physical gold for you. However, they charge higher fees. In a SHTF scenario, you may not be able to withdraw your gold.

The primary benefit of IRA investing is tax-deferred gains. That is irrelevant if you are investing in gold or silver. There is no dividend that you would owe tax on. If you know someone who will buy gold from you off-the-books in exchange for slave points or other goods and services, then there's no advantage to owning gold in an IRA. Just take physical delivery.

Buying gold in an IRA is silly, because there's no tax advantage. You get the same advantage if you take physical delivery and later sell off-the-books. If you have savings already in an IRA, you might as well buy GLD and SLV for now. I'm seriously considering cashing out my IRAs and paying the early withdrawal penalty. If I could solve the "safe place to store my metal" problem, I'd probably do it.

If you want to guard against a SHTF scenario, you might be better off taking the money out of your IRA, paying the early withdrawal penalty, and buying gold. However, I'm not 100% sure that the State will collapse in the next 20 years. As a hedge, I'll keep my State paper investments while all future investments will go toward physical gold and silver. I figure that, if the financial system collapses, I'll lose my State paper investments but I'll benefit from having a freed market.

If buy gold and take physical delivery, I see no reason to pay extra for American Eagles. Just buy generic rounds or bars. Try to pay the smallest possible premium to the "official" spot price.

I never understood why some people whine "The banksters are manipulating the price of gold, keeping it artificially low." If you believe this to be true, then buy gold and take physical delivery. Appreciate the discount that you are getting on your gold purchase!

That isn't always possible. When the price of gold was very low last year, a lot of online dealers had no inventory! As long as it's possible to buy a gold future and take delivery, then the "official" price of gold should be close to the price at which you can buy gold coins and bars. You should expect to pay more than the "official" price of gold when you buy, due to transaction costs.

One of my agorist business ideas is "create a gold/silver/FRN barter network". That'll make it easy to buy gold and silver. Suppose you have an agorist business generating $2k of income each month, in excess of your living expenses. With an agorist gold/silver/FRN barter network, you could use the network to invest this surplus in gold or silver. An agorist can't deposit cash in his checking account, due to the State/IRS reporting requirement.

As the counter-economy grows more sophisticated, a free market banking system is desperately needed. A trustworthy agorist banking system would be a valuable way for agorists to protect their savings from theft by State agents.

1 comment:

There's some good information in what you write. There's also some other things you might consider that I'd like to point out (I don't care if you post, as I don't want to step on your toes, but just give you and your readers some good information).

First, there are ways that individuals can put 401k money into gold. They just need to speak with the plan administrator and add the certain vehicles that allow for it.

Second, instead of cashing your IRA out and buy gold coins, you would be better served to roll it over into a ROTH IRA where your investment grows tax deferred and withdrawals (in gold coin) are tax free http://www.irs.gov/publications/p590/ch02.html#en_US_publink10006523.

Even for those that don't convert, if they had a self directed IRA invested in gold through one of the custodians you mentioned, they could take their minimum required distributions in gold coin. Also, I think many will know in advance when the SHTF and withdraw their gold coins, which unlike with the ETF's where you make a great point that one can't take delivery, the one's with the gold IRA's will as the gold is set aside specifically for them.

I also take exception to buying gold rounds and bars because of the assaying issues involved. The world knows about American Eagles and other gold coins. Of course counterfeiting is a danger, so one has to know the right ones to buy.

In general, I agree with you that things will get much worse. When it comes to investing in gold, many are left to the dictate of the Gold Dealers. That's why I wrote a book to help people make the right decisions and not get ripped off.

If you care to post it, the url for the gold book is http://safelybuygold.com Yes, the book is expensive, but so are the lessons in doing things the wrong way.

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For personal finance, my most frequently visited site is Yahoo Finance. Yahoo Finance has the best system for watching your stock quotes during the day. I also like the Motley Fool. Both of these websites encourage you to do independent thinking about finance.

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Mises, Rothbard, and Austrian Economics

The school of "Austrian Economics" advocates credit-based money instead of debt-based money. There are two separate websites, www.mises.org and www.mises.net. These philosophies are a precursor to agorism. However, they still hold out false hope that the people who control the government can be convinced to switch to a fair monetary system. They fall short of the correct conclusion that government itself is the problem.

The Mises and Austrian school is still a pro-State theory of economics. They say "government should adopt a sound monetary policy instead of an unsound monetary policy". They fall short of the truth, which is "Who needs a government?"

Agorism and Anarcho-Capitalism

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The source with the most advanced material on agorism is Kevin Carson's The Mutualist Blog.

This link on the History of Money has a lot of interesting bits on how bankers have controlled the world's money supply for hundreds of years or longer. Unlike most other sources, it is very short and to the point. However, their recommended solution falls short of true agorism.

Freedomain is another good read. He doesn't update his blog often, but he has a lot of good stuff posted in the past.

Kevin Carson's Mutualist Blog - This is a great source. He is tough to read at times, but his content is great. He's the best source on agorism I've seen. I like to take his topics and present them in simpler language. He updates his blog sporadically, but he has a lot of great content. It's also worth reading his other books and articles, which are available from his mutualist.org website. I also like the way Kevin Carson frequently links back to his favorite older posts. Kevin Carson's Shared Items is also worth reading; it's a list of posts from other blogs that he finds interesting.

Kung-Fu Monkey. This blog is written by someone who works as a writer in the entertainment industry, which explains the high quality of writing. He sounds like a closet agorist, although he hasn't specifically mentioned that philosophy. This post on the Extrapolated Everyday Bull**** Comparison has promoted Kung-Fu Monkey from my hitlist to my "read regularly" list.

Redpillguy's Blog - His blog is relatively new, so it's hard to judge. He doesn't really update his blog that often. On the other hand, he frequently cites my content, and that's certainly the sort of thing I appreciate.

Tranarchism is another new blog. It's too soon to judge the content. On the other hand, anyone who heavily cites my stuff can't be all bad. It's too infrequently updated.

Wally Conger's Blog is another good read. However, he really has two separate blogs mixed together. He has a lot of good stuff on agorism and libertarianism. However, he also likes to talk about his favorite movies and TV shows a lot.

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Bill Rempel - He talks about finance and trading. He really dislikes the Federal Reserve. I'm not sure if he's come all the way to agorism yet, but perhaps he can be coaxed. He's guilty of my #1 blog pet peeve: A PARTIAL RSS FEED!

Bored Zhwazi - Has some nice content, but it really isn't updated that often. It's worth checking back once every month or two.